The Rising Cost of Chengdu Living

As Chengdu Living remains free, costs in the Sichuan capital continue to rise.

I remember when a big bowl of noodles was 2 yuan and taxi fares started at five. It doesn’t seem so long ago, but it’s been six years since Kung Pao Chicken (宫爆鸡丁) was 8 yuan or less. That was when the dollar to yuan ratio hung around 8:1 and teachers were strutting if they made more than 3,500 a month.

Well those were the good old days and they’re dead and gone, never to return. Prices are rising in Chengdu City and they’re rising fast. There are a whole basket full of reasons for inflation but they basically fall under one over-arching trend:

Development.

I know we’ve heard it for years – and we often scoffed or marveled, depending on the situation – but “development” was always a term that carried a bit of distance with it. China’s development. Chengdu’s development. Development of a middle class. It’s hard to actually experience something developing until its developed, and by then the frog is cooked, as they say. So when businesses suddenly raise the price of food, or a landlord calls up out of the blue with some bad news, ask not why the bell tolls for thee alone. It tolls for us all.

Local Businesses Feeling the Pinch

“Beef has gone up 8 yuan in the last 2 months,” said Tommy King of KC meats, a local meat supplier. “And it’s probably gone up about 50% in the last two years.”

KC meats has been in business for four years and since then the price for gas, electricity, and meats has risen each year. Tommy and his partner Sarah Crombie have been slowly increasing prices, but have not hiked them up as far as they perhaps should have gone, because customers may not be ready for the shock. KC Meats tries to run the business according to Western standards – cold, quality meats, refunds for unhappy customers – but their supply side is filled with unscrupulous and uncaring producers and deliverers who have no qualms about raising prices and laugh at the mention of a refund.

Getting steak cut at Chengdu’s Qingshi Bridge Market

Other local businesses we all know are also taking hits. The Bookworm has been in business for almost six years, and has recently hired a manager, Andrew Barnett out of Manhattan NYC. But when Andrew re-shuffled the menu and raised prices in line with inflation to create margins that would allow for a profit, there was a bit of an outcry.

“There was an 8% rise in costs across the board from 2011 to 2012 for our business,” said Andrew. “Beef went up, water went up, electricity went up, bread went up …”

I admit it. I got irate when the Bookworm’s big breakfast and an American coffee put me back 75 yuan (about US $12). But that’s just the frog in the pot, realizing he’s being boiled. It might seem ludicrous to compare Chengdu to London, Paris or New York City, but Chengdu and other cities around China have costs that are on par with big cities across the world.

“I paid about 18 yuan for this grapefruit,” says Dana Kaufmann of The Lazy Pug. “We sell a glass for 25 yuan, so there’s not much room there for profit.”

If you want foreign excellence in Chengdu, you’ll be paying for it. Eggs Benedict at The Lazy Pug

A New Demographic

Another thing we’ve been hearing about for a long time is the increase in global multi-national corporations setting up operations in Chengdu. We published several articles on the Tianfu International Complex, and by reading them you get an idea of what it’s like being the slow-boiled frog. When a multi-national shows up, they bring their top management with them and the management brings their families. A typical top-level executive will have their rent paid for, along with their children’s tuition and perhaps a list of small amenities (travel, some food perhaps). But these expat packages are not drawn up with 2 yuan noodles in mind.

“People wanted me to create a taste of home,” said Andrew, of The Bookworm. “There are a lot of Chinese interpretations of what Western food is, but they all fall short and the main reason is cost. Cost is at the heart of authenticity; if you want a good cheesecake, you have to use real cream.”

The new wave of high-end expats is not only willing to spend 12 USD for a breakfast and a coffee, but the packages they ride in on are priced for 40,000 yuan for rent, 100k and up for school and another lump sum for all of the other things. What this does is drive up prices everywhere. International schools like Eton, Leman and kindergartens like Golden Apple adjust their prices to the new market. That adjustment sends a ripple across the economy that hikes wages for some and rents for others.

“Everybody wants a “fapiao” (state-issued receipt) these days,” said Tommy. “A fapiao increases my cost by 5-6%. Until now, I haven’t passed that on. But I might have to real soon.”

Inflation and the Dollar Peg

In an article on his blog, Patrick Chovanec talks about rising prices across China and lists a few interesting “amateur” surveys concluding that China is in some respects just as expensive as the US. He also draws a very easy to follow parallel between the RMB peg to the USD and inflation:

“…if a country is running a chronic imbalance of payments, you’re going to get adjustment, one way or another. If you allow the exchange rate to appreciate, the adjustment will come via external prices (exports become more expensive, imports become cheaper). If you accumulate foreign exchange (FX) reserves to keep the exchange rate from moving, and you don’t keep tightening to compensate, adjustment will come via internal prices (inflation). Either way, China becomes more expensive relative to the rest of the world.”

Basically China is stuck between a rock and a hard place. If the RMB peg is loosened, then exports grow more expensive and the entire economy receives a shock; if they keep the peg in place by buying foreign reserves and releasing RMB into the money supply, then the consumer is shocked by dramatic increases in the price of pork and flour. An article in the Expat Info Desk also talks about the rising costs around China and attributes some if it to weak Western currencies meeting a stronger Chinese yuan. But for the rest of us, it’s the grocery store price hikes we’re thinking about, not currency rates:

Lee Quane, Asian Regional Director at ECA International disclosed that their research indicated that the cost of everyday groceries had increased by 15 percent in China over the previous year and the cost of meat and fish had increased by 12 percent: “What we’ve seen in the last 12 months has been double digit inflation based on the items in our basket of goods. And that could be partly due to the impact of commodity prices over the course of the last 12 months finally coming through to what’s being sold on the retail shelves,” he said.

It seems that China would rather keep factories open and hope that wages can keep pace with inflation than risk having factories close en masse due to costs. What this means for us here in Chengdu is that prices will continue to rise as the consumer society continues to develop. In fact, Chengdu entered the Top 100 in Mercer’s annual Cost of Living Survey this year (!), along with other Chinese second tier cities Qingdao, Shenyang, Nanjing and Tianjin. Shanghai and Beijing are in the top 20, above New York City and London.

“The combination of increased prices on goods and a strengthening of the Chinese yuan has pushed Chinese cities up the ranking. Continued high demand for accommodation has also led to moderate increases in rental costs,” said Ms Nathalie Constantin-Métral, one of the survey’s editors.

Tighten Up or Move Out

Enjoying tea in Chengdu

Yup. The good old days are gone. But on a brighter note, I found myself way out on the west side of Chengdu this weekend and the good old days are alive and kicking out there. I ate a massive meal for 32 yuan and there was a teahouse serving 5 yuan cups of green tea. It looks to me as if the increases are in the wealthy districts of big cities, and not necessarily further outside of the urbanized centers.

Rents and transportation costs are surely lower out on the edge of the expanding city and (a scarier thought) meat and vegetables are cheaper too. In nearby satellites of Chengdu like Dujiangyan or Leshan, costs are lower still. It’s the high life that costs so much; the low life has seen only a gradual change. It’s just been swept outside of the city-center. This line of reasoning says that Dujiangyan is to Chengdu what Chengdu is to Shanghai. So if the prices are getting to you in the bustling center of China’s development, move out to the sticks, where there is still a bit of distance between you and the storm and the pot is still a comfy 35 degrees.

22 Responses to “The Rising Cost of Chengdu Living”

This article reminded me of a conversation I had with 20-something construction workers out when I was flooded out in Ganzi: (http://www.iseastars.org/?p=715)

While I tried to show off my “China age” by poo-pooing the price increases since 2008, the fact is these folks still make 1000RMB a month and that 5-7RMB increase in noodles or 2-4RMB/hr hike at the “wangba” really hits them where it hurts.

I think its appropriate for the price of food to increase, (as we see annually post chun jie) as there seems to be heavy subsidies, but without a stronger social safety net I’m worried about more and more “working” folks to be pushed deeper into poverty. As for us priviged laowai, who expect our “China experience” who thrive off our “china privilege” many of us, (myself included) point the finger at the Bookworm for raising prices and thus pushing it out of the price range for NGO workers/ teachers because we still want to “Belong” to the atmosphere, and are unwilling to except the fact that we don’t NEED western food nor should be feel a sense of entitlement based on past experiences. Making compromises is part of life, but I still think Bookworm needs a “buy 8 wine” get one free card policy to keep the writer types in booze rather than complaining against “the establishment” That was a tangent, but point being is, it’s hard to burst the china bubble that some of us have been comfortable living in for several years and when changes happen to our comfort zone, we raise our pitchforks in revolt.

The breakfast at The Bookworm is a salient example of rising prices, because that’s a venue that was around when Chengdu was very cheap. I think with newer places like The Lazy Pug we’re expecting to pay more because the place is not only managed by very competent expats, but many of the items there are clearly imported and prepared as only foreigners can prepare them.

We’ve all seen costs rising in China, but I haven’t noticed wages rising nearly as much. Foreigners in general get paid far above the average wage so any foreigner can essentially live “as a local” for much less than what they earn, generally speaking. But when you get into the luxuries of living a cosmopolitan life in Chengdu is when the price really goes up, as you mention here.

Hopefully costs and wages come closer into equilibrium so it’s not only foreigners and local wealth that can enjoy some of the nice newer things in Chengdu (The Lazy Pug, custom bicycles, American pizza delivered to your door, etc).

@Charlie, true that, Office workers at my former job made between 2000 and 2500 RMB a month for 9-6 5 days a week. Then they all bugged me to get them an iphone in America since it was cheaper, I told them to save their money to travel as you can’t “lose” or have your experiences “stolen.” But true, many foreign folks feel that they are “entitled” to meals at Lazy Pug or BW, rather than realizing it as a luxury.

I think a jump bringing college-educated office workers into the 3000-4000RMB salary range would open up new markets and keep econ. growth more sustainable . The gap between the Maseratis and the mopeds is too wide.

True that, man, true that. Without a basic belief that “shit is going to get better”, there is no chance of a stable and prosperous society — not to say that China’s there yet — but unless the bottom tiers starts having some faith that the top tiers have at least a little interest in throwing them a bone (ie. the rich and powerful not bending the poor and weak over the credenza every time they get that urrrrge for some loving/money/power) then shit will get real.

Anyway, things are maaaaaad expensive in Shanghai, especially booze and western food. My problem? I love booze and western food, so I’m pretty much fucked, I guess.

But as Eli pointed out, the real problems of price increases aren’t fools like me with my appletinis and diamond-encrusted spaghetti (the only possible explanation for it being RMB 100 +) — it’s hard working people who never had a chance to blow money irresponsibly on luxuries.

Early this past summer, still in Beijing, I found myself in the village adjacent to the private school I worked at buying something at the corner market. I was caught in line behind one of the school’s many migrant construction workers while he attempted to haggle one yuan off the 3 yuan cost of a mosquito coil. I tried to imagine myself in a position where bargaining for every yuan would be of the utmost importance to me and simply couldn’t.

The fact is, China is urbanizing and although many of the jobs made available make housing available for their low cost labor, there’s still a point where the basic costs of living cut into their savings deep enough that they are either drawn to a city with dreams of steady work and savings to send home and this is fulfilled or where these expectations evaporate as they find themselves struggling with day to day expenses and are entrapped.

It reminds me of immigration tactics of American companies at the turn of the 20th century (The Jungle is a concise example of this model). Draw a moth to a light, then turn it off.

I wonder not just about marginalization but health. If I notice the prices going up for the mid-range meats and veggies, then I assume low wage workers have no choice but to buy the cheapest stuff out there. I am sure they don’t think too hard about water in their beef, fake eggs, bad milk or glowing pork.

That is an interesting observation and it makes a lot of sense. I don’t doubt that restaurants are trying to source cheaper supplies in order to keep prices competitive. I think these days I average about $6 or so per meal at a Sichuan restaurant, and I estimate the cost was about half that when I first arrived in 2005. I don’t eat noodles or fried rice as meals though (where it gets really cheap), only dishes.

Having spent my first year in a third tier town, the move to Beijing was a shock in terms of cost difference.

Knowing the relative size and development of Chengdu, I was nearly as shocked by similarity in cost of grocery goods. Although the average salary here is half of what you could expect in a city like Beijing, the daily necessities are no different.

Realty here, I’m sure is on a precipitous climb, but at least comparatively it’s not so bad.

I remember so clearly an experience I had right after I arrived in Chengdu. I was at MoZi Qiao with a friend – a long time China expat who was living in WenJiang at the time – and we came across a woman selling oranges from a cart. He asked her how much for the oranges, and when she told him 2 rmb per pound, he erupted (‘two kuai! TWO KUAI!?!) because he thought it was so expensive. He was shocked because the price was double what he was used to paying in WenJiang. Now the prices of fruit in Chengdu are many many what they were then. Last night I paid 5 kuai for about 13 grapes.

I’ve been in Chengdu for about a year and 3 months and I’ve noticed food prices increase in that time, and not just a restaurants. Whenever we buy groceries to cook at home I’m always surprised by how much I end up spending. And if I want to cook a western meal and have to buy imported items from carrefore, forget it, I spend 100-150 kuai easily.

The first city I lived in was a third tier city in Jiangxi province and while it was super cheap there, there were no western amenities. I’m not really sure which situation is better, but I am pretty happy to be able to find cheese here, even if it’s super expensive.

Looking back on my time in a 3rd tier city, I wonder if it was actually as cheap as I thought it was or it was because of that lack of western amenities that made my cost of living so cheap.

I will say the cost of Shao Kao in Chengdu seems very expensive compared to other cities I’ve been in. I feel like I could get a mountain of meat, veggies and oysters in other places for about 50 RMB, every time I eat shao kao here I spend atleast 100 RMB to get full.

Yes, exactly. I got late night shaokao last weekend with Larry & Jacob of Natooke Bicycle and between the 3 of us the total was over 120 yuan. I haven’t eaten shaokao in a long time but I remember it being extremely cheap even just a few years ago.

The right time, indeed. I left Beijing a couple months ago after five years. When I arrived, I was taking home about RMB 14,000/month after taxes. I paid 3,500 for a one-bedroom, modern condo around the corner from my workplace. There were places for 3,000 and even a bit less in the same compound.

Another RMB 3,500 was quite adequate for food, utilities, local transport and maybe a few modest meals out and DVDs. Indeed, I could have made do with even less if I never bought any import food, DVDs etc. So I was saving half my income and I don’t remember feeling that my cat and I had to do without anything. I was living within the second ring road, as well — not in some remote area.

By the time I left my compound five years later, a one-bedroom couldn’t be had for much less than RMB 5,000. Two bedrooms had gone from maybe 4,200 to 7,000 to 8,000.

In the past year alone, rents went up about 25-30% and not just in expat areas … a Chinese couple I know living in a 30sq m studio in an older building outside the northern 5th ring road saw their rent go up that much in a year.

Over that same year, food went up about 30% … prices went up plus, sizes of most items got very obviously smaller. Combined, the effect was far more than the stated inflation rate of just a few percent. Fruit became so expensive that many folks only bought a few pieces a week for their children.

Most of us didn’t see our income rise 25-30% in that period. For me and most foreign and middle-class Chinese friends, these rises were annoying (like one said, “you have 100 yuan in your hand and it’s suddenly gone”) but … if I had to spend another few hundred a month, it was not really a problem. But I seriously wonder how many low-income families can survive anymore.

Western colleagues and I also began to find ourselves passing up restaurants; prices in many places, and I don’t mean five-star places, became impossible to justify paying.

And I heard this stuff from everyone … Chinese friends whose relatives were visiting from North America would be shocked at the costs and “didn’t want to buy anything.” The US and Canada are not cheap places! When I found myself often thinking, gee, this/that is cheaper in NYC … time to go.

As a part of this, Beijing taxi drivers have pretty much stopped working. It’s become a real topic of conversation how impossible it is to get a taxi, compared with even a year ago. Increasingly, if you do find one, they refuse to work for the meter.

It’s not just at the airport, which has become a real problem, it’s in the inner city as well. Just for example, this past summer, trying to take my cat back home from the vet’s office, a ride that on the meter would be about 35-40 RMB, I had to offer RMB 200 (yes). The next time I had to do that, a Chinese staffer from the vet came out to help me bargain … after numerous rejections, she got a cheaper price for me, “only” RMB 150.

It’s interesting to hear your story – Beijing is definitely on another level as far as cost of living. To me, the quality of life in Chengdu combined with its relatively big city opportunities has made it a good value in relation to other locations in China. If you’re in Beijing, you really have no choice but to be making a lot of money, or else it is definitely not worth it when combined with the other negative aspects of the capital city (traffic, pollution, the hectic pace of life).

I’d say the rise in prices in Chengdu are similar but not nearly as steep as you mention in Beijing. 5 years ago I’d estimate a one-bedroom apartment in Chengdu to be in the 1,200 – 1,500 range, whereas today it might be in the range of 2,000 depending on location. With the average foreigner now making 7,000+ in Chengdu, the rise in cost isn’t nearly as backbreaking as Beijing and it compares favorably to places like NYC on the vast majority of expenses. There are exceptions, and they are generally imported Western food and other trappings of a life of luxury in China. Throughout this rise though I’ve been continuously living with my best Chinese friend who gets by happily on around 2,000 yuan per month and has for years. He doesn’t drink, very seldom eats western food, and is unconsciously frugal at this point.